Intellectual property assets (“IP assets”) such as patents, patent applications, copyrights, trademarks, inventions, trade-secrets, know-how, etc. are many times the subject of licensing or similar transactions in which a seller (or other type of licensor) of the IP asset trades or transfers a set of intellectual property rights (“IP rights”) for some kind of compensation, for example, payment of a fee. An IP right transfer may include, for example, outright sales of IP assets, an exclusive license or a non-exclusive license in the IP asset that grants different types of control over the asset, such as the ability to make, use, sell, or import products or services covered by the asset or the ability to sublicense the asset, or similar rights transfers. Such transfers may include a variety of other features, such as geographic limitations, field limitations, time periods, and a variety of other features. Typically, the buyer (or other type of licensee or transferee) of the IP rights pays the licensor an amount of money based upon an agreement as to what one or both of the parties to the transaction considers the worth of the IP asset and the IP rights at the time of the transaction.
Different techniques exist for establishing or assigning a measure of value to an IP asset, including those favored by persons such as professional accountants and intellectual property (“IP”) valuation specialists. Such methods include, for example, approximating the value of an IP asset based upon its cost-basis (book value), its market value (as it might be sold on a “theoretical” open market), or an estimated future income stream (income valuation). All of these financial techniques have limitations as to their efficacy, for example, the cost of obtaining an IP asset may have little or no correlation to the ultimate worth of the IP asset. For example, filing and prosecuting a patent application and paying maintenance fees may total an amount of approximately $20,000 to $30,000, whereas a license to the patent once issued, if essential to a potential licensee company's product line, might cost the licensee hundreds of thousands of dollars. Similarly, the market value technique may not yield a reasonable approximation of an IP asset's value, because input numbers are based upon hypothetical theories as to the price of the asset on an open market. Since there may not be a truly open market for many types of IP assets, these numbers are sometimes based upon a set of potentially unrealistic assumptions. Similarly, a future income stream model experiences a corresponding susceptibility to valuation shortfalls. Thus, regardless of the financial model used, the current value assigned to the IP asset based upon conventional techniques may not be reflective of its actual value in the future.
In a transaction involving a transfer of IP assets, the amount, valuation, and other characteristics of consideration to be paid by a licensee (or buyer or other transferee) may be specified in variety of ways. For example, consideration may be designated as a fixed payment, a royalty expressed over some period of time, or some combination of both. For example, a fixed payment may be made by the licensee or other transferee up front along with periodic royalty payments over a designated term. In some instances, the licensed IP rights may include provisions and terms under which the licensee may sublicense the IP asset. In such cases, the royalty may be expressed as a percentage of future revenue from sublicense transactions when or if they occur.
As long as all of the IP assets in a single or sequence of related transaction(s) trigger royalties to the same entity (e.g., the original seller or licensor), as, for example, may occur when a set of patents originally belonging to the same entity are sublicensed together, the royalty payments received by the original licensor likely appear “fair,” as the licensor and licensee (or their predecessor entities) each contributed input into a royalty agreement that contemplate licensing the IP asset by itself or in conjunction with other IP assets associated with the same entity. However, in today's intellectual property landscape, where companies or other IP holders sometimes seek to expand their portfolios of IP assets for many different reasons, including to insure freedom to operate, it is conceivable that the purchaser (or licensee) of these assets may desire to further license (or sublicense if applicable) different patents or other types of IP assets originating from a multiplicity of different sources (e.g., the original licensors) and/or in which one or more entities may hold beneficial interests (e.g., investors, distributors, vendors, employees, contractors, or similar). For example, a licensee (as a sub-licensor) with a diverse portfolio of a variety of patents and IP rights associated with those assets may wish to sublicense hundreds of patents, some important and some not, for such purposes as creating a strategic and more powerful relationship with a sub-licensee vis-à-vis a common competitor. The sub-licensor may be faced with potentially paying royalties to each original licensor of each IP asset that was licensed as part of the sublicense transaction, regardless of whether any one particular patent was crucial to the deal. To the original licensor of the “critical, deal-making” patent, the fact that the original licensors of other “lesser” patents also receive royalties may seem somewhat unfair. Also, unless the sub-licensor is careful, a licensing transaction may be structured that results in paying royalties (as percentages of revenue generated by the transaction) in excess of 100% of the generated revenue. Such a transaction may simply result in an bad deal.